Thailand Cuts Growth Outlook as Economy Enters Recession

A cyclist rides past Thai national flags on the Krungthep bridge in Bangkok. Thailand’s economy shrank a seasonally adjusted 0.3 percent last quarter from the three months through March, when it contracted a revised 1.7 percent, the agency said today. Photographer: Dario Pignatelli/Bloomberg

Aug. 19 (Bloomberg) -- Thailand cut its 2013 growth
forecast as the country entered recession for the first time
since the global financial crisis, with rising household debt
limiting central bank scope to support the economy. Stocks fell.

Gross domestic product unexpectedly shrank 0.3 percent in
the three months through June from the previous quarter, when it
contracted a revised 1.7 percent, the National Economic and
Social Development Board said in Bangkok today. Only one of 11
analysts surveyed had predicted a decline. The economy rose a
less-than-estimated 2.8 percent from a year earlier.

Thai policy makers are struggling to sustain growth as
government spending plans are delayed, while a slowdown in China
curbs demand for exports from Southeast Asian nations. The Bank
of Thailand will hold the policy interest rate at 2.5 percent at
its Aug. 21 meeting, a Bloomberg survey showed, after Assistant
Governor Paiboon Kittisrikangwan said last month that household
debt at 80 percent of GDP limits the scope for further easing.

“Exports have remained weak, while domestic demand is also
weakening, and the infrastructure spending plan is also
delayed,” said Kozo Hasegawa, a Bangkok-based foreign-exchange
trader at Sumitomo Mitsui Banking Corp. “The outlook for the
economy is more severe now,” he said, adding that he expects
the central bank will keep borrowing costs on hold this week.

The state agency cut its full-year expansion forecast to
3.8 percent to 4.3 percent from 4.2 percent to 5.2 percent. It
lowered its export growth target to 5 percent from 7.6 percent.

Stocks Slump

The Thai baht slipped 0.3 percent to 31.36 against the
dollar as of 1:09 p.m. in Bangkok. It has lost almost 5 percent
in the past three months, after reaching its highest level since
1997 in April. The benchmark Stock Exchange of Thailand Index
fell 2.1 percent, heading for its biggest drop since July 25.

The Thai central bank cut its 2013 GDP growth forecast to
4.2 percent from 5.1 percent on July 19, citing weakening
exports. Shipments grew 0.95 percent in the first six months.

The monetary authority lowered borrowing costs by 25 basis
points in May. Singapore last week cut its forecast for exports
this year, while Indonesia this month reported second-quarter
GDP growth of less than 6 percent for the first time since 2010.

Thai consumer confidence fell to the lowest in seven months
in July on rising political unrest and the weakening economic
outlook. Prime Minister Yingluck Shinawatra imposed the Internal
Security Act for eight days this month to contain protests as
the parliament debated an amnesty bill for political protesters.

Car Sales

The administration has tried to speed up its budget
disbursements as 2 trillion baht ($64 billion) allocated for
infrastructure spending and 350 billion baht for water-management projects have been put on hold.

Toyota Motor Corp. said last month industrywide car sales
in Thailand will fall 9.5 percent this year. Total bank loans
grew 12.8 percent in the second quarter from a year earlier,
compared with 13.2 percent in the previous three months, central
bank data showed earlier.

Private consumption grew 2.4 percent in the second quarter
from a year earlier, slowing from a 4.4 percent pace in the
previous period, today’s data showed. Government consumption
rose 5.8 percent from 4.4 percent in the previous three months.

“We still have a chance to grow at the high end of the
range if we can speed up budget disbursements and try to boost
exports,” Arkhom Termpittayapaisith, secretary-general of the
state planning agency, told a news conference today. “Economic
growth in the second half will rely more on private investment
and tourism, as growth in exports and household spending are
still limited. Still, those factors are sensitive to the
political situation, making it a key risk for economic growth.”

While the delayed public spending and last year’s high base
following the slowdown after the 2011 floods are a challenge,
lower inflationary pressure “allows monetary policy to be
accommodative,” Arkhom said. Consumer prices rose 2 percent in
July from a year earlier, compared to 2.25 percent in June.